I have referred to mitigation as an effective method to alleviate the adverse
impact of development on ecosystems.

And I also mentioned the risk of the
concept, which could be employed as a pardon for development when misused.

Let me first review the meaning of mitigation.

When a development
project includes land incorporating a precious ecosystem, the concept of
mitigation to alleviate the adverse impact of development can be implemented via
the following three stages:

First, the stage of "avoidance": to exclude the area of the
ecosystem when implementing the development project.

Secondly, the stage
of "minimization": when it is impossible to exclude the area, shrink the size of
the project itself to minimize the adverse impact to the
ecosystem.

Thirdly, the stage of "compensation": in the event
minimization is hard to achieve, to compensate and supplement the function of
the ecosystem with different formats.

Mitigation is the
implementation of these three stages starting from the stage of "avoidance"
(which is called "sequencing") in order to minimize the adverse impact of
development on the ecosystem.

A method
to push forward "compensation" measures smoothly
In recent years in the United States, a leading country of mitigation, a
movement to limit the concept only to the third stage of "compensation" and
enhance the methodology emerged.

In the process from the second stage of
"minimization" to the third stage of "compensation", there are two cases: 1)
when compensation measures can be taken and 2) when compensation measures cannot
be taken.

In case of 1), there is no problem. In case of 2), one might
have to make the ultimate decision to "either develop or conserve".

A
criterion here is the value comparison of "whether social values generated from
the developmental acts outweigh natural protection".

If the answer is no,
there is no problem. However, if the answer is yes or neither/nor, the case is
serious.

"Compensation" measures are taken for the first time at this
stage where "destruction of the ecosystem is inevitable".

When the
mitigation method started becoming popular in the United States, development was
permitted if the developer took "compensation" measures not only at the
development site or adjoining location but also with artificial ecosystems, such
as artificial tidelands and artificial wetlands, which had the same kind of
function as the would-be-destroyed ecosystem.

In the early days, the
order and control of compensation measures were under the auspices of government
authorities.

However, this consequently created several problems.

First, the artificial wetlands created as a compensation measure
were not only small in scale but also located dispersedly. In particular, a
number of fragmented alternative wetlands were created by linear projects, such
as highways and train trucks.

Secondly, as a result, restoration of the
functions of ecosystems failed after monitoring and management of the newly
created ecosystems was insufficiently conducted and those ecosystems eventually
became abandoned.

Thirdly, even when monitoring and management were
conducted perfectly, enormous costs and human resources were
needed.

Fourthly, even when the same kind of ecosystem was created, it
did not organically link with the greater ecosystem of the whole area and
strategical alignment was not possible. In many cases, failure occurred when the
water system was severed because the water level of the alternative wetland
could not be secured.

Fifthly, the total social costs swelled as it took
time to confirm the functions of "compensation" measures and issuance of
permission for development was delayed.

These are some of the
problems that occurred in the early days.

Meanwhile, when developing land
containing wetland ecosystems, severe conditions are imposed to pass criteria
for permission based on Section 404 of the CWA (Clean Water Act) and
"Swampbuster" provisions of the FSA (Food Security Act). Therefore, the
necessity of an improved mitigation system which is fairer, more credible, more
motivative and less costly was urged by the developers.

This is how the
idea of a mitigation bank came to be considered as an efficient method for
smoothly carrying out the third stage of "compensation" measures.

This
idea was raised during the administration of U.S. President George Bush and
demonstrated in a tangible way for the first time in 1993 under the
administration of President Bill Clinton. Simultaneously, a guide for
establishing a mitigation bank was formulated in 1995.

The basic idea for
wetlands conservation in the United States originates in the concept of
"no-net-loss policy" (compensating net loss of wetlands with restoration and
creation of wetlands quantitatively and qualitatively equal to what has been
lost) adopted in 1988.

The countermeasures taken in the past were aimed
at embodying this concept, namely the subtraction and addition of loss and
restoration/creation of the same kind of ecosystems at the development
sites.

The concept of mitigation banking, which grew from this idea, is
based on the viewpoint that even when restoration and creation is implemented at
different areas apart from the development site or, in some cases, even with
different kinds of ecosystems, no-net-loss of wide-area ecosystems can be
achieved if strategically proper.

Procedures for establishing and operating mitigation banks
Mitigation banks are established and operated according to the following
procedures:

1) Regarding land containing an ecosystem larger than a defined
area, the land owner, supporting sponsors and the MBRT (Mitigation Bank Review
Team), which integrationally manage the mitigation bank, will meet to exchange
an agreement to for establishing a mitigation bank and clarify its final
goal.

2) Evaluate the value of the land containing the ecosystem by
"credits" and determine how many credits the land holds.

3) Sell the
credits to the following people and secure funds for the bank.
i) sponsors,
ii) developers who plan to develop other lands containing ecosystems and iii)
speculative clients, etc.

4) The developers who plan to develop other
lands which contain ecosystems mentioned above can obtain permission for
development by first converting the value of that ecosystem that would be lost
by their development to "debits" and then purchasing the same amount of
"credits" from the mitigation bank.
One-to-one transactions of development
and compensation is hereby immediately complete.
Needless to say, this
transaction is allowed only when there are no other measures that can be taken
when the process of "avoidance-minimization-compensation" is
concluded.

5) When all the credits are sold, the mitigation bank may
withdraw and use the fund for restoration and creation of its own ecosystem
under management by a third party (MBRT).
It is also possible to purchase and
expand the adjoining land subject to a new ecosystem.
Moreover, the
mitigation bank should monitor, conduct maintenance and manage the functions of
these ecosystems.
Monitoring continues for roughly five years (in the case
of forests and others, longer than that) after the success of the bank is
confirmed.

6) When the state of the ecosystem of the land acquires
sustainable stability after going through these stages, the bank may either be
disbanded or management transferred to a public organization or a new bank, if
the management by the existing mitigation bank is discontinued.

7) If the
bank fails to restore and create an alternative ecosystem, actions including
public support will be taken so that the functions of the ecosystem as a whole
will not be degraded.

There are more than one hundred
mitigation banks created this way in the United States.

Those who
expected most from this system of mitigation banking were developers whose
development sites contained ecosystems.

It is safe to say that their
expectations strongly support the market mechanism of the mitigation
bank.

They can not only purchase credits from mitigation banks to acquire
permission for development but perhaps also purchase other lands which contain
ecosystems, establish mitigation banks there by becoming sponsors themselves and
enjoy a two-birds-one-stone effect, i.e. achieving development and enjoying the
management merits of mitigation banks.

Arguing merits and demerits
However, in opposition to such a welcoming mood on the developers' side,
some have pointed out the merits and demerits of the mitigation bank
system.

Merits of mitigation bank are argued as follows:

First, the fundamental way of thinking that forms the basis of the
concept of mitigation banking is the so-called "economy of scale", which
maintains that 1) a larger area is better than a smaller area for an ecosystem,
2) ecosystems should be connected or gathered rather than isolated and 3) a
good-quality ecosystem is better than a bad-quality ecosystem.

The idea
is also applied to the costly monitoring and maintenance and management of
ecosystems. Large and gathered ecosystems help cut costs, and therefore, the
functions of the ecosystems can be perpetuated.

Also, in preparation for
an unexpected large-scale adverse impact caused by development, it is better to
enlarge immediately tradable areas.

Secondly, the completion time of a
development project will be shortened and uncertainty of whether the project
will be successful or not will be decreased.

Thirdly, a preferable result
can be expected not only quantitatively but also qualitatively. In terms of
alternative planning, monitoring and maintenance, better quality can be expected
by securing experts.

Furthermore, the functions of a greater ecosystem of
the whole area can be enhanced because a wide-area strategical alignment of
ecosystems will be possible.

In particular, to make a region in the area
that used to be a wetland a target region for restoration will lead to effective
compensation.

Fourthly, it is more likely that those who own land with
ecosystems having zero market value can make a profit through the mitigation
banking system without building any structures on the land.

Fifthly, the
mitigation banking system creates a new investment opportunity. So far, most of
the mitigation banks are run publicly, but in recent years, private companies
started entering the field of management of mitigation banks.

They now
consider mitigation banking as an investment opportunity in the new
era.

Sixthly, as a future possibility, we can think of the concept of an
"umbrella bank", under which heterogeneous concerned parties, including
developers and representatives of private companies, military projects, public
and quasi-public offices, will cooperate in the multilateral development of the
banking system.

On the other hand, the demerits of the
mitigation banking system pointed out by the National Audubon Society, a major
environmental NGO are as follows:

First, as the service area that one mitigation bank manages is so
wide, the compensatory sites can be located hundreds of kilometers away from the
original development sites.

Particularly, as mitigation banks for
compensation of development in areas with high land prices, such as suburban
areas, will be set up at areas where the land prices are low, the distance
between them will be even greater.

The residents' accessing rights to the
ecosystem therefore could be taken away by the mitigation bank.

Secondly,
a mitigation banking system can be an easy way out at the very beginning of the
project without undergoing the due process from "avoidance" through
"compensation" via "minimization". The process of "avoidance" and "minimization"
can be simply passed and it is likely to be used as a convenient measure or an
excuse to obtain development permission.

Thirdly, the "no-net-loss
policy" is a interim target as a nation and not a final target. The central
governments have an obligation to increase and conserve ecosystems exceeding the
loss.

Fourthly, public responsibility and compensation measures when the
mitigation banking system fails to restore or create an ecosystem are not
clear.

The range of social responsibilities of the mitigation bank should
be clarified because even when it fails, it can sell the
credits.

Furthermore, financial support for failed banks might be
necessary.

Fifthly, regarding the advantage of bank management, there are
gaps between ecosystems that are easy to restore or create in the short term and
ecosystems that take longer time to restore or create, such as
forests.

The inexpensive and easy creation of wetlands might impact
unnaturally on ecosystems.

Developers might try to buy credits of
ecosystems that can be created inexpensively in the short term from the bank and
use it as an excuse for development.

Sixthly, the impact on an ecosystem
by a development project for which permission was obtained by purchasing credits
occurs immediately, while it takes quite a long time for the effective
restoration and creation at the compensating ecosystem of the mitigation
bank.

Therefore, chronologically speaking, there is a gap of timing
between the "destruction" and "restoration and creation" of an ecosystem and a
huge amount ecosystem loss will occur in the short term.

In order to
avoid this, the exchange rate of debits (value of destroyed ecosystem) and
credits (value of restored and created ecosystem) should not be one to one but a
higher rate should be applied.

As to exchange rates for transaction
between the same kinds of ecosystems, a young ecosystem and a mature ecosystem
should be dealt with at a different rate because it is like exchanging a ripe
banana with a green banana.

Moreover, when regarding exchange rates
between heterogeneous ecosystems, the organic reaction between the two kinds
should be considered when determining the exchange rates because it is like
exchanging an orange with an apple.

Seventhly, the greatest
circumspection should be paid to the reactions between ecosystems, such as the
upper stream and the lower stream which are connected at a flood plain, or a
large wetland and small wetland.

A uniform operation of mitigation
banking could result in tremendous chaos for ecosystems in the
future.

Early review for
establishing a plan
In Japan, the concept of mitigation banking has just recently emerged and
supporting legal institutions do not exist. It is still a blank
sheet.

Not only that, it is so backward that only now is Japan tackling
the primitive compensating measures between the homogenous ecosystems at the
development site.

Unlike the United States, which has a huge
environmental capacity, Japan has a small environmental capacity and the total
amount of tradable credits is also small. Hence, service areas managed by a
mitigation bank would be inevitably large.

The concept of "a small and
low-quality ecosystem being sacrificed to maintain a large and good-quality
ecosystem" is similar to the idea of "the weak becoming the victims of the
strong", which may not be traditionally Japanese.

To create a unified
criteria for evaluating the impact of a development project and evaluating an
ecosystem is also a preconditioning task.

However, a tendency among
certain environmental NGOs in Japan is to call for the establishment of
"Japanese-style mitigation banks".

The combination of a mitigation
banking system and ecotourism wherein tourists themselves become the buyers of
credits is food for thought, as well.

I think that an early review for
establishing a plan for a Japanese-style mitigation banking system under
consideration of the above-mentioned merits and demerits is
needed.